News On the Economic Front

[John317]

U.S., foreign shares plunge as Lehman Bros. declares bankruptcy

By KEVIN G. HALL

http://www.federalreserve.gov/newsevents/press/monetary/20080914a.htm

WASHINGTON -- Shares on Wall Street plunged Monday morning as traders steadied for a financial hurricane after the federal government refused over the weekend to bail out the venerable investment bank, Lehman Brothers. Lehman announced it would declare bankruptcy.

European exchanges were trading down between 4 percent and 5 percent, and a similar steep plunge was expected on Wall Street, where fear is running rampant. Minutes after the 9:30 a.m. EDT opening of markets, the Dow Jones Industrial Average plunged more than 300 points and the S&P 500 and Nasdaq exchanges fell precipitously too.

While grim, this drop was less than feared and fell short of the panic some analysts had feared. A widening crisis in credit markets had investors mumbling about shades of 1929 and the great stock market crash associated with the Great Depression. The Treasury Department and Federal Reserve worked around the clock over the weekend in hopes of staving off a wider global meltdown.

"We have been and remain in close contact with other U.S. and international regulators, supervisory authorities, and central banks to monitor and share information on conditions in financial markets and firms around the world," Fed Chairman Ben Bernanke said.

The Federal Reserve on Sunday night broadened the range of collateral it would accept from struggling financial companies seeking short-term loans, in a bid to contain the financial crisis.

As investors fled almost every asset class on Monday morning, the price of next-month delivery oil contracts on the New York Mercantile Exchange also plunged. They were down almost $6 a barrel to $95.62 a barrel. If this price holds, it will mean Wall Street's losses are Main Street's gain. The price of gasoline should be sharply cheaper for consumers in the weeks ahead and this should boost consumer confidence.

President Bush was expected to address the nation midmorning, after receiving a briefing from his treasury secretary, Henry Paulson. Bush is expected to remind Americans that the deposits in their local banks are secure and insured by Federal Deposit Insurance Corp.

Even before the gold-medal winning U.S. women's soccer team rang the opening bell on the New York Stock Exchange, it was already a busy morning on Wall Street. Bank of America's board of directors had approved the surprise $50 billion purchase of investment banking giant Merrill Lynch, and Lehman Brothers was in the process of filing for bankruptcy.

At the start of the weekend, Merrill was considered a potential buyer of Lehman but instead offered itself up to Bank of America, the nation's largest bank, which now becomes one of the most important stock market players. Earlier in the year it completed the purchase of Countrywide, the nation's largest mortgage lender, and Charlotte, N.C.-based Bank of America is now a muscular company with few parallels.

"We thought this was the strategic opportunity of a lifetime," said Ken Lewis, Bank of America's CEO, said in a morning news conference announcing the acquisition of a competitor and adding that Merrill will continue operating under its own name.

In another unexpected and unprecedented move, the insurance and financial services giant American International Group (AIG) was talking to the Federal Reserve on Monday about securing an emergency line of credit. Investors are fleeing the company, whose stock fell by 31 percent on Friday and fell again on Monday morning.

AIG's problems underscore why Wall Street is in a state of near-panic. AIG isn't an insolvent company and already raised $20 billion this year to shore up its balance sheets.

But its falling stock is forcing it to sell assets like its aircraft leasing business and to plead for investment from private equity companies. AIG desperately needs to raise about $40 billion in new capital, but it cannot borrow because of today's credit crunch. Absent this capital, rating agencies could downgrade it, requiring even more capital that it cannot raise....

[Gus Foster]

I do not think that it necessarily comforting, but it is at least quieting to know how this whole economic scenario ends. Rev 18 is very specific on this subject. The pure 'church' of Rev 12:1 organizes as a beast in Rev 13, except for a remnant. This beast emerges in Rev 17 as the impure woman riding another beast. This one consists of the money-changers and industrial/military leaders who control the whole world, even though they are admitted Lucifer worshipers.

Rev 18 is very plain about what turns out to be a war between the organized apostate church who is destroyed by this beast complex. It should be emphasized that in the end, there is not any commodity that is worth anything. This is 'after probation has closed.' Since we know that it is during the fall festival, we should be aware of this time of 'the days of awe'.

The time of the days of Noah is upon us, and the one year and ten days is about to start. God's people need to let go of the world and the strange fire and commodities it dangles in front of our human nature. Grab and wrestle-hang on.

[John317]

Hi Gus,

Could you explain the reference to 110 days. How do you understand that?

[Jeannieb43]

Now, in addition to Lehman Bros., AIG is going down.

And I think the Fed is rescuing AIG. And Barclays is buying the U.S. Lehman Bros. unit.

Real estate values are dropping. Stock portfolios of all types are losing value.

We've been told that in the last days our money will be worthless. Looks like those times are upon us.

[Stan]

Oil is dropping, as is Gas.

Confidence in the US dollar has taken a turn upward over the past few weeks

The Euro was 1.56 and has risen to be only 1.42 today according to www.xe.com

The Aussie dollar was almost par with the US dollar now it is about 1.26

The US dollar has risen against most other currencies as well.

[Woody]

Quote:

Oil is dropping, as is Gas.

Not sure what part of the world you live in but here ... the price of gas just rose 50 cents a gallon during the past week.

[carolaa]

Real estate values are dropping. Stock portfolios of all types are losing value.

Does anyone have any thoughts on where is the best place to invest? My boss was considering a property in Galveston last spring - now he's glad he went a different direction. Land and real estate used to be pretty secure. Is there anything that is solid any more? Or should we just build a house in the woods and plant a big garden and be self sufficient?

[Jeannieb43]

Just make sure not to let any of our politicians invest our Social Security money in "privatization" [e.g., stock market]. The folly of that idea is becoming clearly evident these past two days.

[Dr. Shane]

The current financial crisis has nothing to do with government investing in the private sector. In fact, government investment in the private sector is bailing us out and may well have prevented it.

The issue being dealt with now is really one of government mandates in the financial sector, lack of accountability and the wrong kind of regulation. Most all congressmen and senators have taken money from these failing institutions. There is a lot of blame to spread across both parties but it has nothing to do with government investment in the private sector.